Early in July, a group of young Israelis gathered in a small apartment in Tel Aviv to talk about the difficulties of finding affordable places to live in the city. They had come at the invitation of Daphni Leef, a video editor who was about to be evicted from the apartment and who had recently posted an “event” on Facebook summoning people fed up with the housing situation to pitch tents on the streets in protest. Inside Leef’s living room, there was enthusiasm for the idea, but no one expected a big turnout. “We didn’t expect it to last longer than a weekend,” Stav Shafir, a student who was there, told me recently. “I wrote an e-mail to my friends asking them to come, just so that we wouldn’t feel lonely.”
Daphni and her fellow protesters did not feel lonely for long. The first night the tents were pitched—July 14—about 150 people showed up. Within a few days, a sea of tents had spread across the pedestrian walkway bisecting Rothschild Boulevard, a busy street lined with art galleries and cafés. The squatters inside the growing encampment were dismissed at first as spoiled kids from Tel Aviv—“this isn’t a real protest, it’s people eating sushi and smoking nargilahs,” complained David Amar, the mayor of Nesher, a town in northern Israel. Yet similar encampments soon sprang up in places such as Be’er Sheva, a working-class city in the Negev, and Holon, a poorer town south of Tel Aviv.
On July 25, after tens of thousands of Israelis rallied to demand cheaper housing, the newspaper Haaretz announced that the demonstrations had “reached a peak.” Two weeks later, the peak was eclipsed, as an estimated 300,000 people demonstrated in cities across the country, blocking traffic and unfurling a giant banner in Tel Aviv that proclaimed “Egypt is here!”
What some termed the “Israeli summer” bore less resemblance to the so-called Arab Spring than to the economic unrest that has convulsed cities such as Athens and Barcelona recently. “We want a welfare state!” chanted members of a movement that soon had the backing of unions, women’s groups, parents upset about the exorbitant cost of day care, and medical workers on strike over low wages in public hospitals short of resources. The eruption of popular disenchantment and call for a “more just, humane Israel” spelled out in a manifesto released by some of the protesters made the right-wing government of Benjamin Netanyahu suddenly look a lot less stable, not least since the man at its helm has long been a staunch advocate of the laissez-faire economic policies the demonstrators angrily assailed.
By the third week of August, when I met Stav Shafir, the social protests had finally been pushed out of the headlines by news of a terrorist attack in southern Israel that left eight Israelis dead. The violence and ensuing diplomatic crisis with Egypt, which recalled its ambassador after five Egyptian security officers were accidentally killed during an Israeli retaliatory mission, prompted some to demand that the protesters fold up their tents and go home. “Security matters are once again the most pressing issue,” said Likud Knesset member Ayoub Kara—and much to Netanyahu’s relief, some of the protesters believed him. Yet on September 3, an estimated 450,000 Israelis flooded the streets yet again, linking arms and chanting “The people demand social justice!”—which had become the movement’s rallying cry. It was the largest protest in Israeli history.
Some of the tents on Rothschild Boulevard were folded up a few days later, when inspectors dispatched by the Tel Aviv Municipality arrived in the middle of the night to remove them. A judge subsequently issued an injunction stopping the evacuation until the court could discuss the matter. In early October, municipal workers accompanied by border patrolmen and police came back to finish the clearance operation. This time, a court rejected a last-minute appeal from some of the protesters to stave off the tents’ removal, and soon there were no more tents on Rothschild Boulevard.
Although it is too soon to say how the mass demonstrations this summer may alter Israel’s politics, one thing they have already done is challenge the optimistic portrait of the Israeli economy drawn by some analysts in recent years. “Israel has become an astonishing success story,” wrote David Brooks of The New York Times in January 2010, hailing the country’s emergence as a dynamic high-tech center. Brooks based his argument not on conversations with Israelis but on the findings in Start-Up Nation: The Story of Israel’s Economic Miracle, a book published in 2009 by Dan Senor, a Fox News contributor, and Saul Singer, a columnist at the Jerusalem Post. According to the book, which became a New York Times best seller and was cited by Netanyahu in a speech before the Jewish Federations of North America that year, a spirit of risk-taking improvisation fostered in the army and strengthened by adversity has turned Israel into “the greatest concentration of innovation and entrepreneurship in the world today.”
Israel’s high-tech industry is indeed booming: as Senor and Singer note, more Israeli companies are listed on the NASDAQ than from all the nations in continental Europe combined. Propelled by the export of software and other high-tech products, the economy grew an impressive 5.2 percent last year. But fewer than 10 percent of Israelis work in the high-tech sector. And as suggested by the level of support for the protests this summer, which ranged in polls between 75 and 88 percent, a miracle is not how most Israelis would describe what has happened to their economy in recent years. In the discussion groups that took place every night inside the tent encampments, participants traded stories about struggling to meet their expenses even as they heard ministers boast that the economy was flourishing.
Many complained that the unbridled capitalism embraced by their leaders mainly benefits those at the top, a perception borne out by some findings that do not appear in Start-Up Nation. According to a 2010 report published by the OECD, Israel has the fifth-highest level of inequality in the thirty-four-nation organization. It has the highest poverty rate of any OECD country, and ranks twenty-fifth among developed countries in health care investment.
To Palestinians in the Gaza Strip, where the unemployment rate is 45 percent, Israelis distressed about these facts may still seem enormously privileged. And compared to the average Gazan—or for that matter the average Israeli a couple of generations ago—they are. As Paul Rivlin notes in his survey of Israeli economic history, The Israeli Economy from the Foundation of the State through the 21st Century, after declaring independence in 1948 Israel had to ration basic goods under a strict austerity program. It struggled to absorb hundreds of thousands of new immigrants, who were packed into often squalid transit camps.
But in the decades that followed conditions improved, thanks in part to the inflow of capital from abroad (reparations from Germany, the sale of State of Israel bonds) but also to public investment in infrastructure and education, the development of new industries, and the cultivation of various institutions with openly collectivist aims: cooperative farms and kibbutzim in the agricultural sector, and the Histadrut, a federation of trade unions that also ran the nation’s largest health fund and numerous industrial enterprises. Like the Labor Party that governed Israel between 1948 and 1977, these institutions were always more open to Ashkenazi Jews of European origin than Mizrahi Jews from North Africa and the Middle East, to say nothing of Arabs. But in a nation founded by socialists where roughly 70 percent of the workforce was unionized, an egalitarian ethos prevailed that made Israel among the least stratified countries in the world.
“When I started my sociology studies at Hebrew University in 1961, we were taught that the difference between the income of an executive and a production worker was 2.7, and we were proud of it,” Shlomo Swirski, the academic director of the Adva Center on social equality, a research institute based in Tel Aviv, told me. “Now, a senior executive earns 90 to 95 times what a production worker earns.” A turning point came in 1985, when hyperinflation caused by oil shocks and excessive spending (much of it on military outlays) prompted the adoption of a stabilization plan that entailed deep cuts in government expenditures.
The plan worked, helping to tame inflation and to establish a new ideology that called for privatizing state enterprises, lowering corporate taxes, and shrinking the public sector. Without much domestic opposition or attention from the foreign press, Israel’s highly egalitarian social democratic system gradually gave way to a more entrepreneurial American-style one, a trend accelerated by Netanyahu, a graduate of MIT’s Sloan School of Management who, in 2003, while serving as finance minister, lowered income and corporate taxes while slashing social services.
“Netanyahu cut everything—rent subsidies, assistance to low-income families, child allowances, income maintenances, sharp cuts,” recalled Leah Achdut, an economist who was then deputy head of the National Insurance Institute, which oversees many of Israel’s public welfare programs. By 2003, she told me, public spending had already fallen substantially from the unsustainable levels of the mid-1980s—from roughly 70 to roughly 50 percent of GDP—but the country’s economic leaders were not satisfied. “People said it’s not enough, we have to reduce taxes and government more to encourage the private sector,” said Achdut. “Bibi very much believes this—in this respect, he is entirely American.”
“Swinish capitalism” is how the journalist Ari Shavit described the new system in Israel shortly after the social protests began, and seemingly everywhere one looked this summer—“Bibi you hog, give back the state!” proclaimed a sign that captured the prevailing mood—the sentiment was echoed. Much of the outrage was directed at the group of families who now control an estimated 30 percent of the Israeli economy. The shift to a more entrepreneurial model of capitalism was supposed to breathe competition into sectors of the economy once dominated by the state. But instead of free competition, what many Israelis feel they have gotten is cartel-like oligopolies that control everything from the banking industry to supermarket chains, which pass along inflated costs to consumers who are captive to them.
It is widely believed that, as in Russia, the privatizing of former state enterprises has been greased by cronyism, a form of influence-peddling documented in a film called The Shakshuka System that was screened one night on Rothschild Boulevard. An Israeli version of Roger and Me, the film follows the producer, Miki Rosenthal, around as he poses awkward questions to tight-lipped officials about the sale of state assets at bargain prices to the Ofer family, whose holdings range from shipping to chemicals to natural gas. Some of the officials who refuse to talk to him (and who helped arrange the deals) end up landing jobs with the Ofers.